Have your cake and eat it too.

Tag Archives: inheritance

In my last post, I talked about a conversation with co-workers regarding life insurance and one co-worker said that he preferred a whole life insurance policy because he wanted to leave a legacy to his children. My co-worker is not great with his finances and lives paycheck to paycheck, so I can see why he thinks that leaving a large sum of money would have life changing effects.

Another co-worker said that she and her husband were ready to retire, but continue to work because they want to make sure they have enough to pay for their kids’ college tuition and to help out with their future wedding and downpayment on their first house. Yet another co-worker who is of retirement age continues to work to support her adult children who have failed to launch. While I won’t have to worry about how to deal with money matters with an adult child since my son just turned 2 years old a few months ago, this topic has been on my mind after having those conversations.

I can understand wanting to to help out your child, and I would want to help my child out with college and other milestones they have in life. It’s natural to want the best for your child. Millenials nowadays often have a heavy burden of student loans and an unstable job economy. I think it’s wonderful if a parent, who is financially able to, lends a helping hand to an adult child. However, I’ve seen with a few of my co-workers where they are financially support their adult child who constantly gets into trouble with money. Enabling an adult child who constantly gets into money woes is a disservice to them.

If every time your child struggles with financial issues, you step in to fix the problem, your adult child will never learn to deal with those financial issues. Inevitably, those same financial issues will pop up again, causing a vicious cycle, which the adult child has no incentive to remedy since the Bank of Mom and Dad is always there for a bailout. By always stepping in to financially help out an adult child who makes financial mistakes, you prevent them from learning to solve problems, from learning that there are consequences to bad financial decisions, and from learning to take responsibility. While the adult child might think that receiving money from a parent to help out with a financial crisis is a great gift, I think that the biggest gift I’d like to impart on my child is the gift of financial literacy.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. – Chinese Proverb

Shannon Ryan, who blogs at The Heavy Purse (which is a valuable resource for teaching children to be financially literate), recently wrote that one of the greatest responsibilities as a parent isn’t to tell her “children what to think, but to help them think for themselves, which means they have to learn how to make decisions, good and bad, on their own.” For another great resource to help you in raising financially literate children, check out the free e-book How to Teach Your Kids About Money, written by Laurie who blogs at The Frugal Farmer.

In my opinion, the best way to raise a financially literate child is to lead by example. Often times, children will learn bad financial habits from their parents and continue those bad habits in adulthood. Another great way to teach them to be financially literate is to talk about money and money decisions, and giving them an opportunity to make their own decisions and learn from their mistakes. I am always thankful that my parents have been great financial role models, and have taught me the benefits of saving and of investing.

In a recent news story, a wealthy real estate mogul passed away and left a large inheritance to his daughters. However, the inheritance has many strings attached. His daughters will receive $687,000 when they get married, but ONLY if her future husband signs a prenuptial agreement. Another $1 million is given if the daughters graduate “from an accredited university” and writes an essay describing what she intends to do with the money (the essay is subject to approval by the trustees appointed by their father). In the year 2020, the trust will pay out three times the daughter’s salary (apparently as incentive to earn a high income). What if the daughters became a stay-at-home-mom you ask? Well, that’s covered too. The daughter will receive three percent of the value of the trust, but the child must not be born out of wedlock. It is as if their father is trying to impart his financial values from the grave. Granted, it is a large inheritance, but if he had taught his daughters to be financially literate as children, then he should trust that they will be responsible to handle the money.

If you have amassed a sizable amount of property and assets during your life, you will want to take the necessary steps to ensure everything is passed along to your loved ones according to your wishes. There are several ways to accomplish this, and the right option for you will depend on your unique financial circumstances. One option that you may want to consider is a family trust.

A family trust, also called a revocable living trust, is a legal document that establishes a protocol for how your assets will be handled once you become incapacitated or die. This option is particularly advantageous for wealthy individuals since it allows you to protect your assets and reduce the tax liabilities of your beneficiaries.

How Does a Family Trust Work?

When you create a family trust, you will appoint an individual to serve as the trustee. The trustee will take control over the assets in your trust at the time of your death or if you become incapacitated and can no longer manage them yourself. Make sure you choose someone who is both trustworthy and capable of handling this important responsibility. Your estate planning attorney can help ensure your family trust clearly spells out the responsibilities of the trustee and provides for a smooth transition of your assets to your heirs.

It is important to understand that your trustee cannot do whatever he or she wants with the assets in your family trust. The trustee must follow the guidelines you have set up in the terms of your trust.

Once your family trust has been created, you can move any of your assets and property in and out of it as you wish. Transferring your assets into a family trust is a fairly straightforward process, and your estate planning attorney can help ensure it is completed properly. Since the trust is revocable, you maintain full control of all the assets in the trust until the point that you become unable to do so due to disability or death.

Who Should Consider a Family Trust?

A family trust may be an ideal estate planning option if you:

Have young children and need to ensure their inheritance will be handled properly and responsibly until they are old enough to manage it for themselves

Have children from a prior marriage and want to protect their inheritance from going to your current spouse in the event of a divorce

Would like to minimize the estate taxes imposed on your estate when you die

Would like to protect your loved ones’ inheritance from the risk of being seized by creditors, during bankruptcy proceedings, or in a lawsuit

Own property in multiple states and would like to avoid the time, hassle, and cost of multiple probate (the legal process that happens after death) proceedings after you die

Benefits of a Family Trust

There are many benefits to placing your assets in a family trust. It can:

Help you avoid probate after you die

Allow you to maintain control of your assets throughout your life so that you can use them as you like

Prevent the courts from controlling your assets if you become incapacitated

Allow you to change the beneficiaries of your assets at any time

Reduce your estate tax liability

Set up health powers of attorney and make your healthcare wishes clear in the event that you become incapacitated

Provide legal protection of your assets, ensuring they pass to your beneficiaries according to your wishes

Significantly reduce the amount of time it takes to settle your estate after you die

Tax Benefits of a Family Trust

When set up properly, there are significant tax benefits associated with a family trust. You can substantially reduce or potentially avoid entirely the estate taxes imposed on inherited property. If you have a very large estate, this can potentially save your loved ones hundreds of thousands of dollars.

It is important to understand that estate tax laws change periodically. In order to ensure your family trust is set up in a manner that maximizes these tax benefits, you will need to work with an estate planning attorney who is current on the federal tax regulations governing these trusts.

Choosing a Trustee

If you decide to create a family trust, you should put a lot of thought into who you choose as your trustee. This person should be someone you completely trust. In addition, this person should be fairly savvy regarding financial matters. This is extremely important since the trustee will be responsible for investing your assets as stated in your trust.

In most instances, you will want to choose a close family member. This is commonly a spouse or a child. However, if you feel a different person such as a sibling or a close friend would be more qualified to handle these important functions, then choose the most qualified person.

If you don’t have a family member or close friend whom you trust to perform this job, then you may want to consider appointing a professional trustee. However, this should be a last resort since professional trustees will need to be paid for their services and in many instances, this will give them an incentive to drag out the proceedings.

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Bio:

Andrew Martin is a professional writer with over five years of experience writing legal copy. He is also a musician and regular contributor to the Marquee Magazine, an online and print publication covering music in the Boulder and Denver area.

The following is a guest post from Andrew Martin. He will return with another guest post next week entitled, “Is a Family Trust Right For You?”

It is never pleasant to think about the need to make arrangements for your death, especially when you are relatively young. But if you neglect to clearly state how you would like your assets and property to be distributed after you die, your intended beneficiaries may not receive the inheritance you have worked so hard to provide them with.

A will is the easiest way to ensure your assets are distributed according to your wishes. They are inexpensive to create, and the peace of mind they provide is invaluable. In spite of this, a shocking number of Americans don’t have a will.

The Importance of Having a Will

These statistics make it clear that a vast majority of the general population doesn’t understand the importance of having a will. It is an important document that everyone should have, at all stages of life, regardless of whether or not you have a lot of money.

If you die intestate (the legal term for not having a will at the time of your death), your assets will be distributed according to the laws established by your state. These laws don’t evaluate your unique individual circumstances or make an effort to determine what your true wishes are. As a result, it is likely that your intended heirs may not receive their proper inheritance.

By creating a will, you will be able to take control over who receives your assets after you die. A will can address a wide range of issues, including:

How your assets and property will be distributed

Who will act as executor of your estate

Who will care for your minor children

Directives about your funeral or burial arrangements

Regardless of your age or the size of your estate, there is no reason to give up control over these decisions.

Appointing an Executor

One of the most important directives you can make as part of your will is the appointment of your executor. This person will manage your estate and handle your arrangements after you die. By naming an executor in your will, you can ensure the person who performs this important task is someone whom you trust and believe is capable of handling this job.

If you do not have a will, the role of executor may either be performed by a stranger designated by the state or someone who is first in line legally, but who you may not completely trust or believe to be competent. The ability to name an executor prevents these scenarios from arising.

There is another important reason to maintain control over who is appointed executor of your estate. When the state designates a stranger to serve as executor, that person is entitled to collect fees for carrying out this duty. As a result, there will be less money to distribute to your desired beneficiaries. The executor you choose in your will can waive these fees, maximizing the inheritances for your heirs.

Maintaining Control over the Distribution of Your Assets

You’ve worked hard all your life. Don’t you want to know that the assets and property you’ve acquired will be distributed according to your wishes? Without a will, your assets will be distributed according to the laws in your state, making it impossible to ensure your intended heirs receive their rightful inheritance.

This is particularly impactful in situations where you get remarried and have children from your prior marriage. By creating a will, you can ensure your children receive the portion of your estate that they deserve. Otherwise, your new wife may be entitled to a large percentage of your assets, even if you were only married for a few years.

In your will, you can also make specific gifts of cash or property to whomever you choose. As a result, you can ensure your daughter receives your nicest jewelry or your favorite artwork goes to the person who would appreciate it most.

Having a will is also extremely important in situations where you want to leave assets to a partner you’re not married to. The intestacy laws in many states do not recognize unmarried couples as having the same rights as a spouse. As a result, your live-in partner for more than 25 years may not receive anything even though you built your lives together and deserves the same inheritance benefits of a spouse. If you create a will, you can avoid this situation.

Providing for the Care of Young Children

If you have young children, creating a will is one of the most important things you can do. In your will, you can make provisions for guardianship of your children in the event that both parents die together in a common disaster. Beyond appointing the people to raise your children, your can also cover just about every aspect of your children’s care, including:

Making provisions for setting up a trust for minor children

Establishing who will manage the trust for your children, ensuring that your children’s money is properly managed and not squandered

Placing directives on how you want your guardians to raise your children – this can cover issues such as religious education, extracurricular activities, or the desire to send your children to top tier colleges if they can get in

Working with an Experienced Wills and Trusts Attorney

Wills should always be carefully and thoroughly thought out, and not drafted haphazardly. There are many issues to consider when creating a will, and it is important to work with an experienced wills and trusts attorney who can guide you through this process. By doing so, you can ensure that your loved ones are properly provided for when you’re gone.

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Bio:

Andrew Martin is a professional writer with over five years of experience writing legal copy. He is also a musician and regular contributor to the Marquee Magazine, an online and print publication covering music in the Boulder and Denver area.